Parabolic SAR is a trend-following indicator that plots dots above or below price to signal trend direction and potential reversals. In uptrends, dots appear below price; in downtrends, they appear above, accelerating closer to price as trends strengthen.
The Parabolic SAR value adjusts based on the prior bar’s price movement. It increases in bullish markets and decreases in bearish ones, while the acceleration factor rises, pulling the SAR closer to price during rapid moves. This makes it ideal for trending markets, functioning like a dynamic moving average. The indicator is built into MetaTrader and most trading platforms.
Parabolic SAR Trading Signals
Price crossing the SAR dots triggers a “flip,” where dots switch sides, signaling a potential trend end or reversal. The flip occurs at the prior period’s high or low.
Parabolic SAR excels at identifying market exit points. Close long positions when price falls below the SAR line; close short positions when price rises above it. Use it as a trailing stop-loss: in long trades (price above SAR), the line trails upward even amid pullbacks.
Parabolic SAR Calculation Formula
For Long Positions (Buy):
SAR (i) = ACCELERATION * (HIGH (i – 1) – SAR (i – 1)) + SAR (i – 1)
For Short Positions (Sell):
SAR (i) = ACCELERATION * (LOW (i – 1) – SAR (i – 1)) – SAR (i – 1)
Where:
- SAR (i – 1) — indicator value on the previous bar
- ACCELERATION — acceleration factor
- HIGH (i – 1) — highest price of the previous period
- LOW (i – 1) — lowest price of the previous period
Adding Parabolic SAR to Your Chart
Parabolic SAR comes standard in major trading platforms like MetaTrader. Select it from the indicators list and apply to your chart—no separate download needed.
FAQ
What does a Parabolic SAR flip mean?
A flip occurs when price crosses SAR dots, switching them from above to below (bullish) or vice versa (bearish), signaling potential trend reversal.
How do you use Parabolic SAR for exits?
Exit longs when price closes below SAR dots; exit shorts when above. It serves as a dynamic trailing stop that adjusts with the trend.
What are default Parabolic SAR settings?
Typically starts with acceleration factor at 0.02, maxing at 0.20. Adjust for volatility: lower for choppy markets, higher for strong trends.
